Interpretation and application of tax treaties – graduation thesis (examensarbete 30 högskolepoäng))

WebJournal on International Taxation in Sweden (WITS) no 3/2012 (March)
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Over a period of professional life of about thirty years I have devoted a lot of attention to the study and analysis of international taxation in general and of double taxation treaties in particular. In terms of numbers of articles, reports and papers written on these subjects I would suggest that I am second to none in Sweden.

There is of course still a lot to be concerned about regarding our Swedish tax treaties. This was indeed highlighted recently when the Swedish National Audit Office (Riksrevisionen) and the Federation of Sweish Enterprise (Svenskt Näringsliv) – simultaneously actually – critisized the legislator and tax treaty negotiator for having neglected our treaty network for such a long time. Another reason for concern is the deploring track record of our Supreme Administrative (Tax) Court regarding treaty interpretation and treaty application matters. See my report hereon from 7 January 2011 at www.petersundgren.blogspot.com. This became especially apparent in the passionate debate that has taken place over the last couple of years regarding the treaty override cases RÅ 2008 ref. 24 (the OMX case) and RÅ 2010 ref. 112 (the Greece case) which have seriously tarnished the Court's reputation regarding treaty application matters. Professor Gustaf Lindencrona, Sweden's leading authority on international taxation, despairingly noted that the Court had ”lost its international dimension” and all one could do was to set one's hopes to the next generation of Supreme Court justices.

Therefore it is very satisfactory to learn that the interest in tax treaty matters is kept alive in that generation, more specifically at the university in Lund where Edina Catic (in June 2011) graduated with a remarkable thesis on ”Interpretation and Application of Tax Treaties in the Light of Recent Court Case Developments” (Tolkning och tillämpning av dubbelbeskattningsavtal i ljuset av den senaste tidens rättsutveckling). It is a very comprehensive paper covering no less 118 pages and can be accessed at ( http://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=1977031&fileOId=1977133). The allusion to ”recent court case developments” is of course a reference to the treaty override debacle. In a restrained understatement she concludes that the Court's views on treaty override may yet give rise to future problems.

With regard to treaty interpretation in Sweden we are in the very fortunate position that the Court on two occasions, RÅ 1987 ref. 162, ”the subject-to-remittance-case” regarding the UK treaty and RÅ 1994 ref. 84, ”the Luxembourg case, have specifically addressed this matter and firmly established that interpretation shall be conducted in accordance with the international law principles on this matter laid down in the Vienna Convention on the Law of Treaties where all measures - with a strong purposive (teleolocical) approach - should be adopted in order to reveal the intentions of the Contracting States. The 1987 subject-to-remittance case, focussing on article 3.2. of the OECD Model treaty regarding the inerpretation of terms not specifically interpreted in the treaty, constitutes nothing less than an interpretation of this interpretation article! The prevailing methods for interpretation of domestic Swedish laws, disfavouring teleological overtures, and giving the terms of a treaty the meaning they may have under domestic tax laws should be demoted to a very last resort method. Ms Catic points this out very clearly.

It should, however, be underlined that the Court's recent treaty override decisions have in no way changed this attitude to treaty interpretation. For the simple reason that treaty override has nothing to do with treaty interpretation. Treaty override is a matter of treaty application addressing the problem of which text that should prevail in determining tax liability, the treaty or domestic (Swedish) tax law, whereas, on the other hand, treaty interpretation is an intellectual process to determine the meaning of the relevant treaty provision. This distinction between treaty application and treaty interpretation by certain commentators, especially Professor Mattias Dahlberg in his 2008 article in Skattenytt pages 482-489, has been misunderstood. In the pertinent OMX treaty override case the Court makes it quite plain that the Swedish domestic (CFC) rule prevails. Period. And that there is no need of any analysis whatsoever of the treaty. So how can one talk of interpretation of a treaty which has not be analysed?1 Consequently, I repeat, treaty override is a matter dealing with treaty application not treaty interpretation.

Maybe therefore Ms Catic should have restricted the title of her thesis to ”Tax Treaty Application in the light of recent Court Case Developments”. But her paper on the other hand discloses that she has a very good grip on treaty interpretation matters (too).

As mentioned above, I have produced a lot of work on treaty application and treaty interpretation. In the recent past especially on treaty override. Here follows a non-exhaustive list of articles which in one way or the other relate to by Ms Catic's work:

Title
Om tolkning av dubbelbeskattningsavtal IUR*)- Meddelande 10-11/1988

Skatterättslig bosättning/hemvist (rättsfall) IUR-Meddelande 2/1996
(Kenya 1 och 2)

Labuan/Treaty override IUR-INFO 3/2002

Labuan Island/treaty override/one more time WITS**) 2/2004 (skatter.se)

Taxation of Cross-Border Partnerships WITS 1/2005 (skatter.se)

Interpretation of Tax Treaties authenticated in two or more languages – a case study. Svensk Skattetidning 5/2006


Treaty override WITS 4/2008 (skatter.se)

Försäljning av aktier efter utflyttning Del 1 WITS 5/2009 (skatter.se)
(Thailandsmålet)

Legalitetsprincipen och skatteavtal WITS 4/2009 (skatter.se)

Normhierarki och regelkonkurrens WITS 3/2010 (skatter.se)

Regeringsrätten backar i treatyoverridefrågan – delvis
WITS 1/2011 (petersundgren.blogspot.com)

Vidare angående intern skatterätt och skatteavtal.
(Kommentarer till Ann-Sophie Sallanders artikel
i Svensk Skattetidning 2010 (sid 177-204) ”I kölvattnet
av RÅ 2008 ref.24”). WITS 2/2011(petersundgren.blogspot.com)

Mail till Mathias Dahlberg ang. treaty override, WITS 3 /2011(petersundgren.blogspot.com)

A scientific study of the taxation of 'emigrating'
capital gains. (Utflyttningsbeskattning av kapitalökningar) WITS 4/2011 (petersundgren.blogspot.com)

*) IUR = Institutet för Utländsk Rätt
**) WITS = WebJournal on International Taxation in Sweden.

These articles ”have been comprehensively discussed” but have not qualified for reference purposes in Ms Catic's thesis, declares Professor of Fiscal Law at the Lund University and Ms Catic's tutor (handledare) Mats Tjernberg.

Stockholm 12 March 2012.
peter@sundgren.net